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LLC Agreement - Adding a partner

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trader

Junior Member
What is the name of your state (only U.S. law)? Florida

Think about adding a member (an employee) to our business. We want to give our employee a 2.5% ownership stake, with an option to buy in at another 2.5% after 24 months.

Questions/ concerns:

1. How do we keep the employee from walking away in 6 months and selling the shares to someone we may not want to be in business with? Can a Buy Sell agreement accomplish this?
2. Is the buy sell something we need to add as an amendment to the operating agreement?

Thanks in advance.
 


quincy

Senior Member
What is the name of your state (only U.S. law)? Florida

Think about adding a member (an employee) to our business. We want to give our employee a 2.5% ownership stake, with an option to buy in at another 2.5% after 24 months.

Questions/ concerns:

1. How do we keep the employee from walking away in 6 months and selling the shares to someone we may not want to be in business with? Can a Buy Sell agreement accomplish this?
2. Is the buy sell something we need to add as an amendment to the operating agreement?

Thanks in advance.
Your LLC is not dealing in "shares" but in "ownership interests" (percentage of ownership).

When updating your operating agreement, include provisions that protect your ownership interests (e.g., all members must consent to sale; offered to members first; whatever).

You should go over your agreement with a legal professional in your area.

Good luck.
 
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adjusterjack

Senior Member
What is the name of your state (only U.S. law)? Florida

Think about adding a member (an employee) to our business. We want to give our employee a 2.5% ownership stake, with an option to buy in at another 2.5% after 24 months.
Trouble with that is, once you make him an owner you can't get rid of him without his consent. That could end up very expensive.

You can accomplish the same reward by giving him a bonus. You can write up terms that don't have to be too formal.
 

quincy

Senior Member
The key in all options is to draft an agreement that covers your wants and needs. A business law attorney can help you accomplish this goal.
 

Taxing Matters

Overtaxed Member
Trouble with that is, once you make him an owner you can't get rid of him without his consent. That could end up very expensive.

You can accomplish the same reward by giving him a bonus. You can write up terms that don't have to be too formal.
The reward is not the same; a bonus does not give you the same thing that an ownership interest does. Moreover, there can be tax advantages to giving the ownership interest over simply doing a bonus.
 

quincy

Senior Member
trader should discuss with a professional in his area exactly why he wants to add the employee as a member of the LLC with an ownership interest in the business as opposed to keeping him as an employee only.

A tax advantage alone will not overcome the possible problems that can arise if the employee/member does not work out well.
 

LdiJ

Senior Member
Trouble with that is, once you make him an owner you can't get rid of him without his consent. That could end up very expensive.

You can accomplish the same reward by giving him a bonus. You can write up terms that don't have to be too formal.
True, but someone with an ownership interest also might work twice as hard for the company as an ordinary employee.
 

quincy

Senior Member
True, but someone with an ownership interest also might work twice as hard for the company as an ordinary employee.
If trader is already thinking about this employee leaving in 6 months (prompting this thread), the addition of this employee as member needs to be considered carefully - and the operating agreement amended to address all concerns. For that, a professional should be consulted.
 

LdiJ

Senior Member
If trader is already thinking about this employee leaving in 6 months (prompting this thread), the addition of this employee as member needs to be considered carefully - and the operating agreement amended to address all concerns. For that, a professional should be consulted.
I am not seeing where you got that.
 

LdiJ

Senior Member
Did you read the first post? I suspect not.
I did but I was focusing on his concern about the employee possibly selling the shares to a third party. I did not see that as the OP really thinking that the employee might leave in six months. Any number of months or years could have been inserted into that same sentence to produce the same thought.
 

quincy

Senior Member
I did but I was focusing on his concern about the employee possibly selling the shares to a third party. I did not see that as the OP really thinking that the employee might leave in six months. Any number of months or years could have been inserted into that same sentence to produce the same thought.
But any number was not inserted. He put 6 months.

Had you read the first post carefully, you would not have to say "I am not seeing where you got that."
 

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